From the Asian financial crisis in the 1990s to the global financial crisis of 2007, finances have occupied a considerable portion of our mental energy. To add to that, the pandemic has wreaked havoc on the job market. Between paying for insurance, a mortgage on your home, retirement, and staying on top of your monthly bills, it is understandable that we are worried about our financial security. Thus, smart budgeting goals are the key to making financial concerns less burdensome. In particular, managing a three-dimensional budget is a good way to start on your journey to financial stability. Let us explore what this is and how we can benefit from it.
What Is a Three-Dimensional Budget?
As with everything, people in different parts of the world have made different systems for managing their money. The three-dimensional budget is just one of many ways that you can learn to make your money work for you. Indeed, by the end of this article, you may find that this approach does not suit your lifestyle and goals. The idea is to have a system that is viable for you.
The three-dimensional budget is a system that ensures you have enough money for three aspects or dimensions of your life. These are routine expenses, big-ticket purchases, and emergency money. These three pillars cover most of the areas where you will be spending your money.
The First Dimension
The first dimension is about routine expenditure. This includes but is not limited to rent, utility bills, gas bills, your monthly down payment, grocery bills, transportation, etc. If you are in debt, you probably have a fixed payment plan and the amount that you spend on paying it off every month is counted within your first dimension.
Now, you may be scratching your head and wondering how you can calculate how much you spend on grocery and entertainment costs. If you are just starting out on a career, it is useful to keep account of how much you spend on this within a timeframe of 2 weeks or a month. You may start to notice patterns like that slice of cake you eat before work every day.
The Second Dimension
This dimension refers to items that you do not pay monthly. They are usually big-ticket items. These include things like buying car insurance or paying property taxes. Sometimes, even credit card expenses can fall under these. The best way to ensure that you do not fall behind on this is by calculating how much you would need to spend in a year on average and dividing it by 12. This gives you the figure for how much you should set aside for every month to help you further down the line.
The Third Dimension
Never underestimate how much an emergency like a hospital visit can derail your finances. Since one can’t plan for emergencies, a good idea is to set up automatic transfers to your emergency fund. Start small as this can add up quickly to provide a buffer for you in troubled times.
